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NHS finance staff face twin challenges

Feature: Finance

For many, winter pressures have extended across a longer window this year. Emma Knowles, head of policy and research at the Healthcare Financial Management Association, explains why the finance profession has a major part to play in providing the right financial platform for service delivery and transformation

No-one can be in any doubt that the NHS faces significant financial challenges both in the immediate term and in the long-term as it looks to deliver services that meet rising patient demand in a sustainable way. The quarter three figures published by NHS Improvement spell out exactly the scale of immediate difficulties with NHS providers reporting a year-to-date deficit of £1,281 million – £365 million worse than the plan for this point in the year. Trusts were also projecting to end the year with a deficit of £931 million – £435 million worse than the planned year-end deficit and £308 million worse than the Q2 forecast deficit.

The winter period has been very demanding – ‘one of the most challenging winter periods that the NHS has had’ according to NHS Improvement. The 5.58 million A&E attendances during the quarter were up 4.7 per cent on the same period in the previous year. The 400,000 emergency admissions via A&E in December were 5.9 per cent more than the final month of 2016. And flu admissions were three times higher than last year – with NHS Improvement suggesting it has been the ‘most significant flu season since the winter of 2010/11’.

NHS Improvement paid tribute to hard-working NHS staff for their efforts over winter. A&E performance remains well below constitutional standards and December saw a further dip in performance compared with November. However the year-to-date performance against the A&E standards was similar to performance for the same period in 2016/17. According to the oversight body, this indicated that the ‘year-on-year decline in performance experienced during this period over the previous four years has halted’.

But the operational pressures have had a very obvious impact on providers’ finances – despite receiving additional winter funding in November’s Budget. While providers have prepared ahead for winter, the significant increase in demand exceeded planned levels. The pressure led to the National Emergency Pressures Panel recommending postponement of elective activity to free up beds and clinical time for the non-elective workload.

Many trusts already plan for a reduced elective workload over the busiest winter months, but for many, winter pressures have extended across a longer window this year, with many reporting a noticeable increase in patient acuity, often leading to longer length of stay and requiring more clinical support.

From a financial perspective, providers have seen a decline in elective activity, replaced by non-elective caseload. This has a double whammy. As NHS Improvement acknowledges, elective income typically exceeds expenditure – so trusts are losing this benefit. At the same time, expenditure on non-elective activity typically exceeds income for higher-than-planned levels of activity – thanks in part to a marginal rate policy within the national tariff. So the unplanned change of balance between elective and non-elective tends to increase any deficits. At the same time, high bed occupancy – well above the 85 per cent recognised level - reduces efficiency.

Commissioners are also hard pressed. NHS England continued to forecast an overall small underspend for the full year at Q3. But within this clinical commissioning groups were forecasting a £291 million overspend with a bigger underlying deficit.

These positions have been delivered while also delivering record levels of efficiencies. Providers reported £2.14 billion cost reductions for the year to date, which while behind plan, were 4.7 per cent higher than the same period last year and an early view of provider productivity of 1.8 per cent means the sector continues to out-perform the wider economy. And NHS England says commissioners have increased the in-year delivery of efficiencies by £519 million.

Future challengesNext year looks similarly tough. Welcome additional resources for frontline services – announced in the Budget by the Treasury and topped up by the Department of Health and Social Care – will clearly help. But the challenge of meeting service demand, maintaining quality and restoring access continues to be immensely difficult.

Amid all this pressure in the here and now, the NHS also needs to raise its eyes to the horizon. There is broad recognition that the service cannot continue to meet rising demand with the same service model. The population is increasing and ageing and there are higher levels of long-term illness. It needs to develop new, more integrated models of care that put a greater emphasis on prevention and supporting patients in the community where possible to manage their own conditions better.

Integrated care systems should emerge from sustainability and transformation partnership areas – with models of care unveiled in the Five-Year Forward View (such as primary and acute care systems and multi-specialty community providers) having demonstrated they can start to make a reality of delivering better outcomes and better care.

It is a daunting challenge, particularly without a significant budget to support transformation. Finance is at the heart of this challenge. This includes both the day-to-day task of delivering operationally – while staying within, or as close as possible to, control totals – and the transformation agenda.

New models of care will need new ways of moving funds around the system – ensuring the payment system is aligned with the desired outcomes wanted from new integrated care systems. Capitation budgets with risk share arrangements are already being explored and finance teams also have a role in helping to ensure governance arrangements are sound for broader system working.

Helping services to identify opportunities for efficiency and better value and then deliver on those opportunities remains fundamental. National work to reduce the cost of temporary staff has helped many trusts to put the brakes on rising costs in this area. Capped rates and support for NHS trusts to establish or make better use of their own staff banks have shifted some of the balance of power away from typically more expensive agencies.

There is a long way to go with the underlying problem of insufficient staff in some disciplines to meet substantive staff requirements and problems with retention as well as recruitment.

Luckily there are a number of tools to support improvement work. The Carter review of productivity has put a huge focus on improving support services. It has triggered an overdue explosion in the compilation of data and metrics to help services better understand current costs and performance. This should allow easier and wider comparison with other organisations to identify opportunities for improvement.

Finance managers have a major role in helping services to understand this cost and performance data – ensuring the data is as robust as possible, presenting it in an accessible and meaningful way and then helping services to deliver those savings where appropriate. NHS Improvement’s Model Hospital brings a huge number of these metrics into a single portal to enable organisations to compare and contrast and drill down into their own information.

RightCare and the Getting It Right First Time initiative also take a benchmarking approach to help organisations short-circuit decisions about where to look for achievable improvement.

To enable these initiatives to deliver to their maximum value, the NHS needs good, robust cost data. Initiatives such as the Model Hospital already factor in trusts’ submitted reference costs. These annually collected costs have been used for decades to provide average healthcare resource group (HRG) costs for treating patients with similar conditions (the cost of a hip replacement for example) and they are the starting point for the annual tariff that sets prices for acute care.

But work is underway to radically overhaul NHS costs as part of NHS Improvement’s Costing Transformation Programme. This aims to get all NHS providers costing care down to the individual patient level using a consistent methodology and approach. While trusts could still see an average HRG cost, this would be based on the individual costs of all patients within that HRG and so trusts could explore where costs were varying from patient to patient. This could help to identify significant opportunities for pathway improvement, improving outcomes, patient experience and cost.

Healthcare Costing for ValueThe Healthcare Financial Management Association (HFMA) has a major part to play in supporting finance managers as they face up to this huge agenda. Its work covers briefings and events to improve understanding of existing policy and its implementation as well as casting its eyes forward to how policies could work in future. Forthcoming work with PwC for example will examine how funding flows may need to change to support integrated working within systems.

The association’s Healthcare Costing for Value Institute also plays a major role in supporting costing practitioners to meet the requirements of the Costing Transformation Programme and promotes the development of value-based healthcare – taking account of quality and costs in all decision making. It also provides a major support network for finance practitioners and others with an interest in healthcare finance to come together and share ideas.

While there is a growing consensus about the future direction of travel and the need for transformation, there are real concerns about the required pace of travel. Providers and commissioners continue to face significant efficiency requirements and the day-to-day operational pressures make it difficult for service managers to look much beyond the immediate must dos.

There are understandable growing calls for a long-term settlement for health and social care to enable better planning for long-term sustainability. There is no doubt that the challenges facing NHS finance managers are set to continue.

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